The Bermuda Royal Gazette (where else could have such a paper?) reports:
Offshore financial centres (OFCs) are facing a "Doomsday scenario" as the world's major economic powers try to put them out of business.
That is the view of consultant Rodney Gallagher, who was a leading adviser to the UK Government on Caribbean financial affairs for more than a decade.
Speaking at the OffshoreAlert Financial Due Diligence annual conference in Miami this week, Mr. Gallagher predicted a particularly bleak future for OFCs that are British Overseas Territories, including Bermuda.
Sitting on a panel discussing the future of OFCs, Mr. Gallagher said such jurisdictions were facing a "perfect storm", due to the severe financial crisis, large countries seeking ways to find badly needed extra revenue after the crash of credit markets and the clampdown on tax havens.
"These three things represent almost a catastrophe for offshore financial centres," Mr. Gallagher told delegates.
He added:
"I am in no doubt that the next five years will see dramatic change and a considerable reduction in the volume of business being done," Mr. Gallagher said.
"Some in the private sector have seen the impact of this already during the first quarter."
I am sure that is true.
It’s the second year in a row that this sort of scenario has been presented at this conference. I was there last year. Things have got worse for them since then. The direction of travel predicted then is happening. I think there is real substance in this.
I’ve long said that for Jersey and Guernsey going bust is the most likely scenario. It’s clear the same is likely in the Turks & Caicos, Bahamas, Bermuda and maybe Cayman. It would happen inn the Isle of Man but for its massive UK government subsidy.
The writing is on the wall. I hope Michael Foot realises.
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Richard
Why would Jersey and Guernsey go bust ? Sure, a sustained economic downturn will have an impact and see some businesses restructure away from the islands, but I’m also hearing of financial services groups who, as a result of G20, are looking to INCREASE their commitment to the Channel Islands by restructuring here and closing their operations elsewhere.
For the islands to go bust we would have to see a dramatic fall in tax revenue. I can certainly see a fall in tax receipts if our tax systems don’t change, but the headroom for increasing taxes to balance the books is massive.
Let’s do the comparatives:
Personal Income Tax 20% v 40% to 50% in the UK
CGT – Zero v 18% in the UK
IHT – Zero v 40% in the UK
VAT – Zero in Guernsey and 3% in Jersey v 15%/17.5% in the UK
Its really not hard to see how the books can very easily be balanced.
Guernsey gave up £100m by adopting its zero-10 corporate tax regime. It is/was hoped that economic growth and other measures would replace that £100m. In the current global economic climate that’s looking unrealistic. A 10% rate of GST in Guernsey would raise an extra £100m a year. Problem solved and the rate would still be a fraction of the UK’s 17.5% rate.
In Jersey a 3% GST rate is projected to raise £45m. A 10% rate would generate £150m, i.e. an additional £105m.
The islands could realistically afford to lose around 25% of their current finance industries and replace the lost tax revenue with increased GST/VAT. The rates might need to be even higher to reflect reduced disposable incomes due to the reduction of employed people, but the headroom is realistically 17.5%. Guernsey is the only western economy without a consumption tax of any sort, and Jersey’s is at one of the lowest rates in existence. Without making any other change to our tax systems we could generate huge amounts of extra tax revenue and yet still be enormously competitive compared to the UK. Why not go the whole hog and introduce GST/VAT at 17.5% ? That’s potentially £175m per annum extra for Guernsey and around £205m per annum extra for Jersey. Why shouldn’t we have consumption taxes when everywhere else has them ? It would hardly be the end of the world compared with the alternatives (which are what exactly ?).
However, I don’t believe for one moment that the islands will lose anything like 25% of their finance industries. Yes, transparency will increase and the extension of the EUSTD will have an effect but my belief is that it will be a positive effect. High quality offshore business happy to submit to full disclosure will actively seek out jurisdictions like the Channel Islands at the expense of others.
The option to withhold tax under the EUSTD will go by 2014. That’s 5 years away. Any increased tax withheld under the extended EUSTD and higher rates of withholding tax would result in extra tax revenue retained by the islands in that 5-year period while the global economy recovers. Personally I would prefer to abolish the withholding tax option now and see the islands benefit from opening up as much as possible although I don’t see that happening until the non-EU connected jurisdictions such as Singapore, Hong Kong, Dubai and elsewhere follow suit.
There is more than enough good quality business which will still be in the islands in 5 years time, 10 years time and even 20 years time for us to survive if we act responsibly in relation to exchange of information. If some business leaves, then fine – it will be replaced by whatever high quality offshore business decides to take flight from lower-rated offshore jurisdictions. For argument’s sake, let say that 20% of Cayman’s finance industry consists of high quality institutional fund business which is able to safely stay offshore. Where is it going to go ? I have a fair idea.
You are no doubt going to tell me that I’m deluded and that the locals in the Channel Islands won’t stomach higher taxes, even if only introduced as a temporary measure. Why not ? What realistic choice would we have ? Leave the island and go to the UK to find jobs and pay even higher taxes there ? Might as well stay here and pay higher taxes then. You simply cannot ignore the obvious headroom which clearly exists. If you ask anybody whether they would like to pay more taxes then of course they are going to say no, aren’t they ?
It would of course be wonderful if the States in both islands would grasp the opportunity to attract entrepreneurs to establish new businesses outside of the finance industry to enable us to diversify the economy and make us less reliant on finance. Judging by the recent surge in interest in the top end of the property markets in both islands since Mr. Darling’s Budget on 22nd April that is looking to be a very realistic prospect as the UK drives successful entrepreneurs away from the country.
We aren’t going to go bust, but rest assured that if we were really struggling then we would no doubt be exploring all options for raising extra tax revenue. Don’t ignore the obvious solutions which are staring us in the face.
Richard – this will no doubt please you.
http://www.iomtoday.co.im/news/Isle-of-Man-moves-on.5246487.jp
Clarke
It should please all of us in the British offshore islands because its inevitable and its the only way forward. We will end up with finance industries built in concrete foundations rather than on sand, and prove to Richard and others once and for all that their allegations are nowhere near as accurate as they claim.
However to square the circle its imperative that Switzerland, Singapore, Dubai, Hong Kong, Panama and others join the party, otherwise not a cent or penny of extra onshore tax revenue will be collected as a result.
Rupert
As ever….the “we’d love to but it will make no difference” excuse.
Shall we all carry on beating our wives? Is that what you’re suggesting? Because you think it makes no difference?
Get real. Of course it makes a difference. For a start it makes it a lot easier to sanction those who are left abusing the system
Richard
Richard
Your turn to get real I think.
Which are the 3 fastest-growing banks in Singapore ? UBS, Credit Suisse and Julius Baer. Coincidence ? Of course not. That’s where billions of undeclared European wealth has migrated to over the past 2 years as Switzerland and Luxembourg are deemed too close to home. How much extra tax in Europe has resulted ? The European countries are not even getting the withholding tax re the funds which have gone to Singapore.
Its a gaping hole that has to be plugged in order for there to be any effect.
Its increasingly obvious that the mission to cut tax evasion is far less important to you than your personal crusade to destroy the British offshore islands.
Rupert
I am sure it is happening
Why does that justify continued abuse anywhere else?
Please answer the question
Richard
Richard
Sorry but I don’t understand your comment when you say “I’m sure that its happening”. To what are you referring ?
In answer to your question I’m saying that if we go to automatic exchange prior to the non-EU jurisdictions being forced to play to the same rules, then significant volumes of funds which are currently within the scope of the EUSTD and TIEAs will move outside the net altogether. I’m saying that to do this would be a mistake as it would not result in any additional tax gathering. Yes the offshore islands could adopt automatic exchange tomorrow but I see no winners other than the likes of Singapore. Surely it is best for the EU to have one and a half hands on funds in the offshore islands in a move towards full exchange of information rather than to have no hands at all on those same funds then sitting in Singapore, Hong Kong or Dubai.
This is not an issue of principle because the principle of automatic exchange is accepted by me as inevitable. Its simply one of timing. Its even quite possible that the EU wouldnt want us to press the button until those other jurisdictions have been brought into line to play by the rules for the reasons explained above.
Rupert
I’m sure money is going to Singapore is what I meant. I thought it was obvious.
And your logic is to excuse tax evasion as a fait accompli we should not tackle.
Do we excuse murder because it will always happen? No.
So why do we excuse tax evasion – which also costs lives?
As for your logic that all should move together – it is so obviously an excuse for doing nothing that you simply sicken me
Richard